DiGi.Com dropped as much as 3.4% before settling at 4.88 ringgit, its lowest level this month. State- run Telekom Malaysia fell to 6.26 ringgit, the lowest since March 7. Maxis dropped 0.9% to 5.85 ringgit, while Axiata Group shed 0.6%. The benchmark FTSE Bursa KLCI ended 0.2% down.

The move comes at a time when consumers in Southeast Asia's third largest economy, where many own more than one mobile phone, are increasingly shifting to data-heavy offerings.

Successful bidders can choose to pay a lump sum of 215.54 million ringgit ($51.12 million) for each 2x5 MHz spectrum packet or select a staggered payment option running up to 15 years, which would raise the spectrum cost to 417.12 million ringgit, the regulator said. The winners have to pay an annual fee of 18.54 million ringgit for each of the 15 years of spectrum ownership.

Still, telecommunication companies are expected to vie aggressively for a slice of the spectrum that could push up bid prices and subsequently pressure cash flows, said AmInvestment Bank's analyst Alex Goh. While successfully securing 700Mhz spectrum would not increase revenue directly, "it's a race that all players have to run, so that they can provide the best service quality to users," he said.

Malaysia's telecom sector is dominated by three operators with Axiata's Celcom unit, Maxis, and DiGi.Com each commanding about a third of the total mobile subscription in Malaysia. The unlisted U Mobile -- controlled by Malaysian gaming and retail tycoon Vincent Tan - jostles with other smaller players for the remaining market share.

Mobile penetration in Malaysia is high at over 100% but the industry is facing pressure to upgrade their equipment due to rising use of video calls and internet gaming. The massive capital outlay required to handle the surge in data traffic, however, have been eroding profit margins, and frequently sparking a price war among the top operators.

DiGi.Com might face higher cost pressure compared to its peers as it is expected to bid for a larger slice of the spectrum, after emerging from last year's 900 MHz re-farming exercise with just one block compared to Maxis and Axiata Group's two blocks each, Goh said.

In a July interview to Nikkei Markets, DiGi.Com's Chief Executive Albern Murty said an increasingly competitive and tough market environment, in addition to macro-economic challenges, would keep the company's operations under pressure.

Regulators are seeking to reallocate the bandwidth currently used for analogue broadcasts to mobile service providers. Malaysia said in June it would switch to digital TV transmissions, a move that will free up broadcasting frequency spectrum that could be leased to other industries, including telecommunications.

As part of the bidding process, interested parties are required to detail plans to introduce mobile broadband services that offer at least speeds of 30 megabits per second by the year 2020.

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